Top 2018 Agribusiness Themes: How Things Have Played Out

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Now that we're halfway through 2018, BMI Research highlights that four of its five top agribusiness themes have played out so far...

1)Agriculture commodities to outperform: Agricultural commodities have been the best performing sub-index within the BCOM index, with grains the best performing group within the agriculture index. With wheat harvests beginning and plantings for corn and soybean complete, we believe most of the grains have been priced in, and without deteriorating weather conditions over the Northern hemisphere summer, will struggle to maintain outperformance.

2)Improving performance of agribusiness companies: This view has not played out, which is market cap weighted and adjusted bi-monthly, suffered from poor performance from sugar and palm oil companies, along with the more consumer-facing companies. Weak commodity prices have hurt palm oil and sugar companies, while trade concerns, logistical challenges, and higher wage bills have impacted consumer facing companies, especially in the United States. One bright spot has been agricultural input companies which, in line with our view, have outperformed the index.

3)Global grain market In deficit:As of mid-June 2018, this view has played out, with the USDA and IGC both expecting global grain market deficits in 2017/18. The ongoing 2018/19 season (according to USDA forecasts) will register a deficit for the second consecutive season for the first time in over 15 years.

4)New government policies on the horizon: This view has played out, with legislative proposals for the European Union's CAP released on June 1 by the European Commission. The 2018 US Farm Bill is currently coming together. Meanwhile, the Canadian Senate has passed third reading of the country’s Cannabis Act (Bill C-45), hurdling one of the last remaining obstacles before implementation. The law will soon receive royal assent, with sales likely to commence roughly 10-12 weeks afterwards. China and India also continue to reform and invest heavily in their respective agribusiness sectors.

5)Trade: Generally expanding, but pockets of DM disruption: Recent moves by the Trump Administration have heightened the risk of a trade war in recent weeks, not just with traditional adversaries like China, but also allies like NAFTA countries and the EU, adding uncertainty around agricultural and food trade between the countries.